A note on differentiability in a Markov Chain market using stochastic flows

Robert J. Elliott; Tak Kuen Siu

doi:10.1080/07362994.2014.975359

A note on differentiability in a Markov Chain market using stochastic flows

Robert J. Elliott^*, Tak Kuen Siu

^*Corresponding author for this work

Department of Applied Finance

Research output: Contribution to journal › Article › peer-review

4 Citations (Scopus)

Abstract

Using stochastic flows of diffeomorphisms relating to a Markov chain together with the Itô's differentiation rule, the differentiability of the price of a European-style contingent claim with respect to the underlying state variables is proved in a continuous-time Markov chain market. The differentiability results are also used to calculate the Greeks for hedging.

Original language	English
Pages (from-to)	110-122
Number of pages	13
Journal	Stochastic Analysis and Applications
Volume	33
Issue number	1
DOIs	https://doi.org/10.1080/07362994.2014.975359
Publication status	Published - 2 Jan 2015

Keywords

Differentiability
Hedging
Markov chain market
Stochastic flows

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10.1080/07362994.2014.975359

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abstract = "Using stochastic flows of diffeomorphisms relating to a Markov chain together with the It{\^o}'s differentiation rule, the differentiability of the price of a European-style contingent claim with respect to the underlying state variables is proved in a continuous-time Markov chain market. The differentiability results are also used to calculate the Greeks for hedging.",

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AU - Siu, Tak Kuen

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AB - Using stochastic flows of diffeomorphisms relating to a Markov chain together with the Itô's differentiation rule, the differentiability of the price of a European-style contingent claim with respect to the underlying state variables is proved in a continuous-time Markov chain market. The differentiability results are also used to calculate the Greeks for hedging.

KW - Differentiability

KW - Hedging

KW - Markov chain market

KW - Stochastic flows

UR - https://www.scopus.com/pages/publications/84915822573

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DO - 10.1080/07362994.2014.975359

M3 - Article

AN - SCOPUS:84915822573

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IS - 1

ER -

A note on differentiability in a Markov Chain market using stochastic flows

Abstract

Keywords

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